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2015/2016  KAN-CFSMO1123U  Theory of the Firm

English Title
Theory of the Firm

Course information
Language English
Course ECTS 7.5 ECTS
Type Mandatory
Level Full Degree Master
Duration One Semester
Start time of the course Autumn
Timetable Course schedule will be posted at calendar.cbs.dk
Study board
Study Board for MSc in Economics and Business Administration
Course coordinator
  • Nicolai J. Foss - Department of Strategic Management and Globalization (SMG)
Contact information: https:/​/​e-campus.dk/​studium/​kontakt
Main academic disciplines
  • Organization
  • Strategy
Last updated on 07-07-2015
Learning objectives
To achieve the grade 12, students should meet the following learning objectives with no or only minor mistakes or errors: The course provides an introduction to the modern microeconomics of firm organization. It surveys central concepts such as asymmetric information, efficiency, incentive conflicts, property rights,
specific assets, etc., and show how these in a game theoretic setting constitute the building blocks of an economic approach to organizations. The course surveys principal-agent theory, transaction cost economics and property rights theory, and develops business applications of these theories. As
such the course provides students with a fundamental toolbox to analyze issues of fundamental importance to business strategy (how should the firm compete in a given market?), corporate strategy (which markets should the firm compete in?), and, in particular, organizational
strategy (how should the organization be designed to serve strategic ends?). Among the issues that are analyzed are the make or buy decision, internal organization, low and high powered performance incentives, optimal patterns of ownership, and hybrid arrangements (such as
franchising).

The aim of the course is that students after having followed the course are able to:
  • Explain concepts covered by the main theories of economic organization/the firm.
  • Discus and contrast the concepts covered by the main theories of economic organization/the firm.
  • Apply the concepts, covered by the main theories of economic organization/the firm, on a real-life business case and based on the analysis, recommend a specific management decisions.
Examination
The exam in the subject consists of two parts:
Theory of the Firm:
Sub exam weight50%
Examination formHome assignment - written product
Individual or group examIndividual
Size of written productMax. 5 pages
Assignment typeEssay
Duration2 weeks to prepare
Grading scale7-step scale
Examiner(s)One internal examiner
Exam periodAutumn
Make-up exam/re-exam
Same examination form as the ordinary exam
If the number of registered candidates for the make-up examination/re-take examination warrants that it may most appropriately be held as an oral examination, the programme office will inform the students that the make-up examination/re-take examination will be held as an oral examination instead.
Theory of the Firm:
Sub exam weight50%
Examination formHome assignment - written product
Individual or group examIndividual
Size of written productMax. 5 pages
Assignment typeEssay
Duration2 weeks to prepare
Grading scale7-step scale
Examiner(s)One internal examiner
Exam periodAutumn
Make-up exam/re-exam
Same examination form as the ordinary exam
If the number of registered candidates for the make-up examination/re-take examination warrants that it may most appropriately be held as an oral examination, the programme office will inform the students that the make-up examination/re-take examination will be held as an oral examination instead.
Description of the exam procedure

Two essays (max. 5 pages per student) made individually. Each essays will count for 50% of the grade. The grade reflects an overall assessment of the two essays.
Course content and structure

Fundamental game theoretic notions (strategies, normal and extensive form games, Nash equilibrium, subgame perfection), the meaning of efficiency, the Coase theorem, general equilibrium, problems of delegation: principal-agent theory, transaction cost economics,
self-enforcing contracts, ownership, bounded rationality and organizational decision-making.

Course status
This is a course on organizational economics that complements or even provide the foundation for many discussions and insights applied in strategic management, corporate finance, and corporate governance.
Teaching methods
Lectures with exercises.
Expected literature

George Hendrikse (2003). Economics and Management of Organizations. McGraw-Hill.
Plus a small collection of classic papers on organizational economics.
Last updated on 07-07-2015